AI Drafter 
TaxTMI 
TaxTMI 
2023 (3) TMI 383
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....RAJIV SHAKDHER, J.: Preface: 1. The above-captioned appeals, though, preferred against two separate judgements passed by the learned Single Judge, are inextricably interconnected; an aspect which will emerge once the broad facts are set forth by us. 1.1 The first appeal i.e., LPA 327/2022 has been preferred by an entity going by the name JBM Ecolife Mobility Pvt. Ltd. [hereafter referred to as "JBM Ecolife"]. This appeal has been lodged against the judgment of the learned Single Judge dated 10.05.2022 passed in WP(C) 6708/2022 [hereafter referred to as the "first impugned judgement"]. Via the first impugned judgment, the learned Single Judge dismissed the writ petition of JBM Ecolife. 1.2 The second appeal i.e., LPA 500/2022 has been preferred by the Union of India [hereafter referred to as "UOI"] against the judgment of the learned Single Judge dated 08.08.2022 passed in WP(C) 8047/2022 [hereafter referred to as the "second impugned judgment"]. Via this judgment the learned Single Judge quashed two communications i.e., letters dated 25.04.2022 and 29.04.2022 which had been issued by the Ministry of Heavy Industries [hereafter referred to as ....
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....o be allowed, having regard to the fact that the debarment directive issued against JBM Electric was no longer operative. On 18.08.2022, we had issued notice in the application and on return of notice, a request was made on behalf of UOI to stand over the appeal i.e., LPA 327/2022, as UOI was intending to file an appeal against the second impugned judgment rendered by the learned Single Judge. The request was acceded to. It is in this backdrop that the second appeal i.e., LPA 500/2022, came to be lodged before us. 3. For completion of the narrative, it would also be relevant to note that since the learned Single Judge had not granted interim relief to JBM Electric in WP(C) 8047/2022, it had preferred an appeal, which was numbered as LPA 357/2022. This appeal was disposed of by us via an order dated 27.05.2022. 3.1. The learned Single Judge in paragraph 19 of the second impugned judgment has referred to this aspect of the matter. The operative directions issued by us via the order dated 27.05.2022 read thus: "6.5. It is, therefore, quite apparent to us that in order to LPA 327/2022 & 500/2022 Pg. 5 of 46 ensure that the writ petition, which is pen....
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.... 10. Consequently, pending application shall stand closed." 4. At this juncture, it would be relevant to note that JBM Electric was debarred/blacklisted by MHI on account of its alleged failure to disclose that the Global Group Revenue (GGR) figure mentioned in its application preferred under the PLI scheme included revenue earned through intra-group sales. This, according to MHI, violated Clause 4 The applicant agrees that if it is found that the applicant has made any incorrect statement on the subject, the application will be closed or rejected and MHI reserve the right to initiate legal action of whatsoever nature. In case if MHI has disbursed the incentives under PLI, the amount disbursed to applicant be recoverable along with interest calculated at three years SBI MCLR prevailing on the date of disbursement, compounded annually besides blacklisting of the applicant and initiation of legal action of whatsoever nature at the discretion of MHI. of the Integrity Pact Undertaking given at the time when JBM Electric had applied under the PLI Scheme. 4.1. As per Clause 3.2 Eligibility: The applicant company or its Group company(ies)will....
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....defined GGR as the total revenue of group companies from automotive and auto component manufacturing activity in a given year. 4.3. The fact that UOI and other official respondents had not drawn his attention to any recognised norm which obtained in the industry or an accounting standard, fortified him in concluding that the allegation made against JBM Electric, that it had made a deliberate misstatement or a misleading declaration, was unsustainable. According to him, in the absence of a clear and explicit stipulation which mandated the exclusion of intragroup sales, the debarment/blacklisting of JBM Electric was unjustified. That said, the learned Single Judge, after quashing the impugned communications dated 25.04.2022 and 29.04.2022, as noticed above, made the following crucial observation in the second impugned judgment: ".....The issues with respect to the eligibility of the petitioner under the PLI Scheme and its debarment are kept open to be considered and decided by the respondents afresh and in light of the observations made hereinabove. The Court further directs that any proceedings that the respondents may draw in light of the liberty accorded ....
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....ctor undertakings. 11. On the same date i.e., 20.01.2022 IFCI Ltd. through its officer, one Mr Aman Gahoi issued a communication whereby it sought the following information/documents from JBM Electric: "1. Shareholding certificate and latest financials of group companies (FY2020-21), considered in the application for global group revenue and global investment in fixed assets. 2. Define how a particular company is a group company with the help of Tree Diagram (showing relationship between companies and shareholding in those company)." 12. The information as sought by IFCI Ltd. was furnished by JBM Electric via several emails dated 21/22.01.2022. 13. On 10.02.2022 JBM Electric came to know via a news report broadcast through a T.V. channel that its application under the PLI Scheme had been accepted. 14. The record would show that by the end of the day i.e., at 23.59 hrs. on 10.02.2022, a complaint had been received by Mr Aman Gahoi of IFCI Ltd. via WhatsApp through one Mr Abhishek Goel. The complainant i.e., Mr Abhishek Goel is a Consultant, who, as per Mr Gahoi is employed with a consultancy firm going by the na....
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....t concerned its technical viability, while the second part related to price. 20. At 08:44 hrs. on 21.03.2022, CESL sent a link via e-mail informing the various bidders, including JBM Ecolife, that the price bids would be opened on that date. However, by 11:06 hrs. the position had changed; the bidders were informed by CESL that due to a technical glitch obtaining in the tender portal, the opening of price bids would have to be deferred. It is pertinent to note that on that very date i.e., on 21.03.2022, Joint Secretary, GOI, MHI had, apparently, communicated to EESL that JBM Electric had not met the eligibility criteria under the PLI Scheme. 21. Nearly a month later, i.e., on 25.04.2022, JBM Ecolife was informed by CESL that the financial bids would be opened "in a day or two". 21.1 The record discloses that on the same day i.e., 25.04.2022, CESL received a communication from MHI which inter alia, indicated that since JBM Electric had violated the Integrity Pact Undertaking, it had been decided to bar, not only JBM Electric but all its group companies from progressing the tender and future tenders up until 31.03.2027. 22. This, as it appears,....
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....h on 13.05.2022, was transferred to the Bench comprising one of us i.e., Rajiv Shakdher, J. on 17.05.2022. On that date, while issuing notice in the appeal, it was indicated that the next steps taken in the matter would be subject to the final outcome of the appeal. 28. The record would also show, something that we have noticed above, that in JBM Electric's writ petition i.e., WP(C) 8047/2022, although notice was issued by the learned Single Judge on 13.05.2022, no interim order was passed. This led to JBM Electric preferring an appeal, which was disposed of on 27.05.2022 with certain directions, the gist of which is culled out in paragraph 3.1. above. 29. JBM Electric's writ petition i.e., WP(C) 8047/2022 was disposed of by the learned Single Judge via the second impugned judgment. This time around, since the learned Single Judge ruled in favour of the writ petitioner i.e., JBM Electric, UOI decided to prefer an appeal. This is how UOI's appeal i.e., LPA 500/2022, came to be listed before us on 01.09.2022, upon being transferred by a coordinate bench via order dated 31.08.2022. 30. Because of the interconnection between the appeals, both causes were h....
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....venue of the group companies from global operations." The expression "global operations" unmistakably points to such transactions which are undertaken by the applicant with third parties. 32.5 Furthermore, the well-established accounting standards/principles commend the exclusion of intra-group sales; an aspect qua which knowledge can be attributed to JBM Electric, having regard to the fact that its application under the PLI Scheme was filed by its Chief Financial Officer, one Mr Vivek Gupta. 32.6 The inclusion of intra-group sales was not without reason as JBM Electric, which had applied under the PLI Scheme, had zero revenue from automotive and/or auto component manufacturing; besides the fact that it had zero net worth as on 31.03.2021. 32.7 The exclusion of intra-group sales is necessary as it makes adjustments against the "double counting" of sales made by JBM Electric to its sister concern(s) within the JBM Group. 32.8. This is an aspect which emerges upon a plain reading of the Guidance Note concerning Consolidated Financial Statements issued by the Institute of Chartered Accountants of India [hereafter referred to as "ICAI"] and Accou....
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.... Union of India (2012) 11 SCC 257 (iv) Otik Hotels & Resorts Pvt. Ltd. V. Indian Railway Catering & Tourism Corporation Ltd. (2010) 169 DLT 459 (v) Centurion Laboratories (Division of Centurion Remedies Pvt. Ltd.) v. State of Kerala AIR (2021) (NOC 36) (14) (vi) Techno Precision Engineers Pvt. Ltd. V. Western Coalfields Ltd. (2014) 2 AIR Bom R 511 33. Although, Dr. Abhishek Manu Singhvi, learned Senior Counsel had joined proceedings via V.C. on behalf of TATA Motors Ltd. [TML]; no separate oral submissions were advanced by him. Apparently, TML seeks to ride alongside UOI, whose stand has been articulated by Mr Venkataraman. 33.1 The record shows that in LPA No.327/2022, TML has filed a reply which takes the same position that has been broadly advanced by Mr Venkataraman albeit, with some greater emphasis on certain aspects that have already been touched upon on behalf of UOI. This approach stands to reason as TML is hopeful of securing the subject contract in case JBM Ecolife were to be excluded from the race, provided it is declared as the next lowest bidder. As noticed above, JBM Ecolife has asserted before us th....
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....aseless, apart from the fact that there was no attempt to mislead. It is required to be emphasised that each group company manufactures different components according to its core competency. Once a product is manufactured by one company and sold to another company within the same group, the latter company makes a value addition which changes the nature of the product before it is sold to a third party. The transactions between two or three group companies are on an arm's length basis. Thus, while calculating GGR under the PLI Scheme, JBM Electric did not take into account trading/input sales. It only took into account revenue which was derived by a company within the group from its manufacturing activity. This aspect is recognized by PLI Scheme as is evident from a perusal of the definition of "manufacturing" set out in Clause 2.21 of the said scheme. 34.6 Since the product sold by a company to another within the same group forms the raw material for the latter, the value addition made by the purchasing company before it is sold to a third party makes out a case of inclusion of both intra-group sales as well as the sales made to third parties while arriving at the GGR....
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....m manufacturing activities, both, on account of sales carried out within the group and those that were carried out with third parties falling outside the group. 34.11 The allegation that JBM Electric had made a false declaration is utterly unsustainable for two reasons. (i) First, as submitted above, the documents filed by JBM Electric included the intra-group sales transactions. IFCI Ltd. which was responsible for evaluating and scrutinizing the documents submitted by applicants had found no irregularity or inaccuracy in the contents of the application filed on behalf of JBM Electric. (ii) Second, a complaint was received by Mr Gahoi of IFCI Ltd., which was based on documents that were already available with IFCI Ltd. 34.12 Therefore, the decision taken to reject JBM Electric's application was an afterthought which was triggered by a complaint lodged at the nth hour by someone who had no locus to intercede in the evaluatory process. 34.13 The record would show that Mr Gahoi of IFCI Ltd. had received the complaint via WhatsApp at 23:59 hrs. on 10.02.2022 which was a day prior to when the list of applicants who had been d....
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....sion of information based on such statements, should have known that GGR figure could not have included intra-group sales. 38. Before we examine this contention further, it would be relevant to note what is not in dispute; only to lend a certain perspective to the submissions advanced before us on this count. 38.1 Notably, the aforesaid stand articulated on behalf of UOI, cannot derogate from the position that the audited financial statements submitted by JBM Electric adverted to related party transactions. Pertinently, in the course of the oral arguments, we heard no submission made on behalf of UOI denying this stand which was explicitly taken on behalf of JBM Electric. 38.2 Therefore, once the material based on which GGR was calculated, was placed by JBM Electric for consideration and evaluation by the PMA i.e., IFCI Ltd., it becomes evident that the financial expert who advised JBM Electric had a different understanding of how GGR had to be calculated. 39. UOI has asserted that there is only one way of understanding the purport, scope and ambit of what constitutes GGR. This argument is founded on the approach recommended by ICAI while pre....
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.... Guidance Note should not be construed to be applicable to the general purpose financial statements as the combined/carve-out financial statements are prepared for specific purposes and, therefore, are 'special purpose financial statements'. xxx xxx xxx Definitions 9. The following terms are used in the Guidance Note with the meanings specified : xxx xxx xxx Combined Financial Statements : Combined financial statements are the financial statements that present the combined historical financial information of combining businesses that do not comprise a group for which the consolidated financial statements can be prepared. xxx xxx xxx Circumstances in which Combined/Carve-out Financial Statements may be prepared 11. Combined financial statements can be prepared in cases where: a) two or more entities are combined in their entirety; or xxx xxx xxx Preparation of Combined Financial Statements Procedure for preparation of combined financial statements for two or more entities 14. The guidan....
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....d by parent/holding companies to provide financial information about the economic activities of its group. Clause 16 of AS 21, on which reliance has been placed by UOI, would have to be viewed in the light of the objective and the scope outlined in AS 21. The relevant parts of AS 21 are extracted hereafter: "Objective The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiary(ies) as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources. Scope 1. This Standard should be applied in the preparation and presentation of consolidated financial statements for a group of enterprises under the control of a parent. 2. This Standard should also be applied in acco....
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.... intra-group sales transactions was always available with UOI's financial evaluator i.e., IFCI Ltd. 44. This brings us to the second aspect which is, whether JBM Electric indulged in misrepresentation or misdeclaration in submitting the GGR figure. The answer to this poser lies in the facts adverted to hereinabove. There is no denial of the fact that the financial statement of each of the constituents was submitted by JBM Electric along with its application form filed under the PLI Scheme. In any event, even before the issuance of the orders impugned in the writ petitions, the financial statements of the JBM group constituents were furnished along with emails dated 21.01.2022 and 22.01.2022. 44.1. JBM Electric, as advised, it appears, verily believed that intra-group sales could be included in arriving at GGR. JBM Electric's stand is that what they have included in its intra-group sales transaction is only the revenue component and not the trading/input sales. It has also been argued that each of such constituents is independently carrying out its manufacturing activity and the product manufactured by one group company which is bought by another constituent of t....
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.... its reputation and goodwill. 47. Thus, for the very same reasons, we are not persuaded to accept the submission advanced on behalf of UOI that the learned Single Judge had issued a futile writ, as on remand the result would be no different. This submission of UOI is premised on the argument that there is no dispute concerning the fact that JBM Electric had factored in intra-group sales while calculating the GGR. 48. To appreciate this submission, one would have to examine the contours of Clause 4 of the Integrity Undertaking Pact. For the sake of convenience, the same is extracted hereafter: "4. The applicant agrees that if it is found that the applicant has made any incorrect statement on the subject, the application will be closed or rejected and MHI reserve the right to initiate legal action of whatsoever nature. In case if MHI has disbursed the incentives under PLI, the amount disbursed to applicant be recoverable along with interest calculated at three years SBI MCLR prevailing on the date of disbursement, compounded annually besides blacklisting of the applicant and initiation of legal action of whatsoever nature at the discretion of MHI."....
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....uld conclude that this was a case in which JBM Electric should be blacklisted/debarred. It is also possible that after hearing the authorized representative of JBM Electric and examining the material on record, even if it chose to impose the penalty of blacklisting, the period could be lesser than that which is indicated in the impugned communication. There are, thus, a whole host of options which are available to MHI. 48.5 The MHI, however, by virtue of its decision to debar/blacklist JBM Electric, has thrown to the wind every known principle of natural justice. The competent authority needed to bear in mind, if nothing else, that JBM Electric, which, according to it, is the delinquent applicant, needed to be heard before a decision was reached as to the penalty imposed on it on account of the alleged infraction. 49. Therefore, according to us, the impugned communications dated 25.04.2022 and 29.04.2022 issued by MHI and IFCI Ltd. respectively, have been correctly quashed by the learned Single Judge via the second impugned judgement. 50. This brings us to the connected issue, which is, what would be the fate of JBM Ecolife. 51. There is very....
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.... formality." 52. Since, the impugned communications dated 25.04.2022 and 29.04.2022 issued by MHI and IFCI Ltd. respectively, concerning debarment of JBM Electric and group companies have been quashed by the learned Single Judge via the second impugned judgment which has been sustained by us, the logical sequitur would be that the first impugned judgment would have to be set aside. 52.1 We may also take note of the fact that when LPA No.357/2022 was disposed of at the hearing held on 23.05.2022, we were informed by counsel for UOI/MHI, based on instructions, that the debarment of JBM Electric was limited to tenders issued by MHI and not with regard to tenders issued by other ministries and departments of GOI. 53. Before we conclude, we intend to briefly deal with the judgements cited on behalf of UOI. 54. The first in line is the judgement of the Allahabad High Court in the matter of Amit Kumar v State of U.P. and Another ;(2020) ALR 290. This was a case where the petitioner had approached the Court for relief inter alia, on the ground that he had been permanently blacklisted from applying for tenders issued by the Department of Food and Civi....
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....t issue its writ to compel the observance of natural justice, not because it approves the non-observance of natural justice but because courts do not issue futile writs. But it will be a pernicious principle to apply in other situations where conclusions are controversial, however, slightly, and penalties are discretionary. 18. In Ridge v. Baldwin [1964 AC 40, 68 : (1963) 2 All ER 66, 73] one of the arguments was that even if the appellant had been heard by the watch committee nothing that he could have said could have made any difference. The House of Lords observed (at p. 68): "It may be convenient at this point to deal with an argument that, even if as a general rule a watch committee must hear a constable in his own defence before dismissing him, this case was so clear that nothing that the appellant could have said could have made any difference. It is at least very doubtful whether that could be accepted as an excuse. But, even if it could, the watch committee would, in my view, fail on the facts. It may well be that no reasonable body of men could have reinstated the appellant. But as between the other two courses open to the watch committee t....
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....ight to be heard does not depend upon an advance showing that one will surely prevail at the hearing. To one who protests against the taking of his property without due process of law, it is no answer to say that in his particular case due process of law would have led to the same result because he had no adequate defense upon the merits." 24. The matter has also been treated as an application of the general principle that justice should not only be done but should be seen to be done. Jackson's Natural Justice (1980 Edn.) contains a very interesting discussion of the subject. He says: "The distinction between justice being done and being seen to be done has been emphasised in many cases.... The requirement that justice should be seen to be done may be regarded as a general principle which in some cases can be satisfied only by the observance of the rules of natural justice or as itself forming one of those rules. Both explanations of the significance of the maxim are found in Lord Widgery, C.J.'s judgment in R. v. Home Secretary [(1977) 1 WLR 766, 772] , ex. p. Hosenball, where after saying that "the principles of natural just....
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....of of denial of natural justice is unnecessary. It ill comes from a person who has denied justice that the person who has been denied justice is not prejudiced. As we said earlier where on the admitted or indisputable facts only one conclusion is possible and under the law only one penalty is permissible, the court may not issue its writ to compel the observance of natural justice, not because it is not necessary to observe natural justice but because courts do not issue futile writs. We do not agree with the contrary view taken by the Delhi High Court in the judgment under appeal." [Emphasis is ours] 55. The next case on which reliance was placed was a decision rendered by the Privy Counsel in James Edward Jeffs and Ors. v New Zealand Dairy Production and Marketing Board and Ors.; (1967) 1 AC 551. 55.1 This was a case where the New Zealand Dairy Production and Marketing Board's decision to make a zoning order concerning factories from which it could get cream and milk was under challenge. The reason for the challenge was the financial conflict of interest it had with one of the entities, which was covered by the zoning order. 55.2 This judge....
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.... contract. That said, in cases where the State [in this case UOI] so decides, it will have to conform to the rigour of Article 14 of the Constitution, as every person has a right to be treated equally when the State seeks to establish a contractual relationship. [See Erusian Equipment and Chemicals Ltd. v State of WB; (1975) 1 SCC 70; this judgement has been cited with approval in Patel Engineering Ltd; see Paragraph 14 and 15 at pages 262-263] 57 The other judgement referred to by UOI is the judgement of a Single Judge of this Court in Otik Hotels and Resorts Pvt Ltd. v Indian Railway Catering and Tourism Corporation Ltd. ; (2010) 169 DLT 459. 57.1 This case is distinguishable on facts. This was a matter where the petitioner's licence issued by IRCTC was cancelled on account of IRCTC being furnished a balance sheet different from the one which was presented to the Income Tax Department and the Registrar of Companies. The audited balance sheet which was furnished to the Income Tax Department showed that the petitioner had a turnover of less than Rs 3 crores for 2003-2004; thus failing to meet the eligibility criteria. Because there was misrepresentation by the p....